Archive - Jun 29, 2010 - Story

• Asian stocks were mostly lower Tuesday in choppy trade as China falters.
• BIS warns countries about risks of debt, on keeping interest rates low for too long.
• China Resources acquires Hong Kong's pacific coffee, to take on Starbucks
• China's Shanghai Composite slumps 4% in late trade on concerns over flows into equity.
• Fed adjusts $1.25 trillion plan to end mortgage-bond purchases on supply.
• IMF Chief says yuan revaluation won't occur 'very rapidly'.

A week ago, when noting the increasingly weaker results of the ECB's Term Deposit Operation, better known as liquidity sterilization, we said, to the usual ridicule: "With another auction next week, and then many more, all dependent on the
amount of debt that Spain et al place "successfully", we expect the Bid
To Cover to decline consistently, until we hit a 1 BTC and the ECB
realizes its monetization program is a failure." It turns out we were right much sooner than expected: the ECB just reported a failed sterilization operation, attracting only €31.9 billion bids for the most recent, seventh sequential €55 billion auction, in which that amount of sovereign bond purchases had to be "laundered" through the system. Only 45 banks placed bids to take down €31.86590 billion or a 0.6 Bid To Cover, compared to the 67 bidding for €71559.9 billion in the prior week, and a "safe" 1.4 BTC. Furthermore, even this failed auction required a massive surge in the rate on the auction: the weighted average allotment rate for today's
operation was 0.54%, compared to 0.31% in last week's operation. The
lowest rate was 0.25% and the highest rate accepted, or the marginal
rate, was 1% -- the highest allowable under the rules of the term
deposit program. This also is a surge from a week ago, when the lowest rate was 0.25%, or the same, and the highest
accepted rate was 0.4%, less than half of today's high rate.

The last thing you want to do if you are a bankrupt country, is tell your skeptics not only 1) the catalyst to trade around but 2) the timing too. Which unfortunately is precisely what happened when, as we reported yesterday, Spain has announced it is panicking about the LTRO roll on Thursday. The net result: the worst performing stock market in Europe, as the IBEX is down 4% for the day, and plunging banks, with both of the country's most insolvent institutions, BBVA and Santander, trading down over 5%. All of these festivities have resulted in a massive shift from stocks to bonds, and the 10 Year now trading below 3% for the first time since April 2009. More concerning is that the 2 Year has just hit fresh all time lows at 0.586%, a level not seen since the 0.6044% on December 17, 2008 after the Fed did its last ZIRP cut. Incidentally a regression analysis between the 2s10s30s butterfly and stocks, indicates that the S&P rightfully belongs well in the triple digit territory.

Impotence defined - 1.3240 is the new EURCHF level at which the Swiss National Bank can only stare, dread and do nothing about. At least the USDCHF has slowed it descent to parity as all of Europe is scrambling to shift its deposits out of local banks and into those of Switzerland. Patience - there are two more days before the LTRO termination, and we may see some real fireworks in the next couple of days as we may witness an unprecedented rush to relocate bank assets. We would not be surprised to see a 1.2x handle in the pair. Elsewhere, there is a true bloodbath in European CDS again, not so much in the usual whipping boy Greece, but Spain, Hungary, and Italy. The shotgunning of risky credits, er, sovereigns has begun. Oh. and remember that "stress test" that was supposed to restore credibility? According to reports Deutsche Bank, Commerzbank, and BayernLB, whose combined assets are likely multiples of Germany's GDP, have passed the stress tests. And nobody gives a rat's ass. Geithner's credibility restoring propaganda plan has now suffered massive failure.

RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 29/06/10

The debate of China's double dip may have just been sealed after the "Conference Board corrected its
April gauge for the outlook of China’s economy, saying its
leading index for the country rose the least since November,
rather than registering the biggest gain in 14 months. The gauge compiled by the New York-based research group
rose 0.3 percent, less than the 1.7 percent gain reported on
June 15." Ignoring for a second the fact that such massive swings in amplitude imply either a malicious data misrepresentation intent or weapons grade stupidity, the second derivative in Chinese growth has now peaked, just at the time when the country for whatever optically political reason decided to unpeg its currency. We are now looking forward to the official rescinding of that decision, and a resumption of the peg. Of course, the fine gentlemen at the Conference Board, have come up with some trivial excuse, namely that the previous release contained a “calculation
error” for total floor space on which construction began, but it is now too late - the discrediting is beyond terminal. And anyone who believes this same agency for its monthly "consumer confidence" reading should ask themselves repeatedly if the CB did not, by mistake or just by following guidelines from above, drop the minus sign.